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Mistaken Identity?

Moving Beyond Misconception to Enter the Nicaraguan Market

By Vinnie Apicella

Nicaragua is a historically rich country that features an exotic sun-drenched landscape of green pasture, lush foliage, fresh water lakes, and traditional colonial cities. It is the largest country in Central America, bordering both the Atlantic and Pacific coasts. It is a country that once stood among the elite in the Western Hemisphere only to be decimated by political unrest and natural disaster that would reduce it to an enigmatic mass of unfulfilled promise and untapped potential. Today, though the country still remains virtually unknown or misunderstood by most people, it is strongly rising from the depths of depression to encapsulate the model of a true emerging market.

As a result of its past problems and recent history of resilience, savvy investors can well find some of the best real estate deals and new business opportunities of anywhere in the world. In fact the government has rolled out the red carpet to anyone with designs on vacationing, investing or relocating there. And in the midst of all this unprecedented investment growth and tourism, there is Calvet & Associates. Led by founder/principal owner Raul Calvet, Calvet & Associates was born in 1999 as a result of the increasing development and tourism taking place.

Their principal business is that of investment strategists, but in actuality, they may be considered a multi-purpose organization that smoothes the process for stimulating the economy between the latest government initiatives through to ensuring the safe landing of investment funds. Calvet & Associates counts investment strategy, marketing, tax consulting, and project management among its list of services and boasts a roster of clients that range from developers of ambitious beachfront resorts to state-of-the-art urban shopping centers with plenty more in the pipeline.

As a current property owner on Nicaragua's Pacific coast and experienced traveler for nearly four years, my own ambitions have grown toward a number of business initiatives that constitute modest goals such as creating a local boating business to the more adventuresome in opening a café or pub in the big city. Along the way, I have had many questions and concerns as to how any such project could come to fruition—in spite of mounting evidence of thriving foreign-owned businesses based in everything from fishing charters to lodging facilities to fine dining. So during my latest trip there, I decided to go right to the source and really get to the bottom of how easy or difficult it is to establish a presence there and what exactly the government may be doing to encourage foreign business and tourism. The results were enlightening and even a little surprising.

Is it difficult to start a business in Nicaragua?

RC: It's very simple. First of all, you have to know that foreign investment in Nicaragua is not only desired and promoted officially by the government, but by private institutions as well. It's not only promoted, but also protected. We have a law that protects foreign investment: "Foreign Investment Protection Law." It guarantees you complete convertibility of your Cordobas (Nicaraguan currency) into dollars with no special taxes or levies and with no requirements or permissions; you can freely have a bank account in Cordobas or dollars and you can transfer your profits or your capital at any time.

The only thing that you have to do in Nicaragua is the same as any Nicaraguan would have to do, and that is to get your different licenses and permits based on the type of business you want to pursue. There are two procedures that are common for every type of business here:

The first is the tax procedure, where everybody has the same tax treatment. You register your company, get a tax ID number and start reporting and paying your taxes. We have an accounting division at Calvet & Associates and there are several clients/investors that entrust us with their accounting, especially during building construction. Another procedure that is common for any business in Nicaragua is that if you’re going to operate as a corporation, you have to create your corporation papers. These are done by lawyers.

If a lawyer does it for you, it will cost you anywhere from $1,000 - $1,500. These fees include $500 or $600 for the lawyer and the rest is for registration and taxes. To get your business registered normally takes some time. So in Nicaragua it is customary that you pay a little extra—maybe $20 or $50 or something—to speed up the process. You can have your papers in a week, more or less, as opposed to waiting up to six months. But normally, it is done very fast and efficiently.

What about doing business as a foreigner?

There are two ways:

Become a resident. As a resident you have the same rights and obligations as any Nicaraguan except to vote.

As a tourist. As a tourist in Nicaragua you can own a corporation, but you have to have an appointed legal representative who is legally residing in Nicaragua. This can be either another foreigner with residential status or a local.

Suppose I'm ready to come here to explore business options. I would arrive, then find a lawyer, then an accountant… so for someone who does not live here or know where to begin, can your office supply these contacts and information?

RC: Yes, it’s a very good first stop. The purpose of our company is to assist investors to do business in Nicaragua. We concentrate on the tourism and real estate industries, but we have occasionally departed from these areas. For example, we have also been involved in the construction of the largest shopping center in the country. It was a $54 million project. At the moment, we are doing another shopping center out of Managua. It's a slight departure, but not much since we actually did the recreational feasibility areas analysis for the center and all the restaurants and movie theater areas. So in relation to tourism, it's not far off.

We have also done an urban project for a residential community development in Managua. But the relation to the above is that we do a lot of these types of projects at or near the beach where many people seek second homes in a very tourist-friendly location. So we cover a broad area with our services and ultimately assist investors with everything from A to Z. Our mission is to make the investor feel comfortable doing business here.

So in a sense, you’re like a bridge between the government and business people.

RC: All business is related to the government in any country based on the legal system and tax system. In that sense, yes, we can be considered a bridge in order to fill all of the legal requirements and do business in Nicaragua

But our orientation is more into the marketing and financial areas. We do a lot of market research and market analysis. We have a complete division that does financial statements, financial projections and financial and strategic analysis. We also have a division that does environmental studies, because in Nicaragua, you cannot do any major developing without a permit from the governmental agency.

If it's a simple project, say for an urban area, the requirements are very simple. But if you are developing land on the beach or another area where you have to open roads and create an infrastructure, you need to fulfill more requirements, which are normally included in an Environmental Impact Study.

We have an Environmental Division here and we can provide supplies for the determination of water availability on the property and its quality. We do geological assessments to determine that the property is not under a kind of peril—above a geological fault, for example.

What sort of tax benefits might a foreign investor expect from the government?

RC: There are several areas in Nicaragua that are promoted by the government and they help you out in several ways. The two most important are Industrial Free Zones and Tourism.

Concerning Industrial Free Zones, there are several industrial parks in Nicaragua where you can either build your business or rent the space. This becomes a tax exempted area—like a free zone for export. You get a lot of incentives from the government. Many different types of industries come here to take advantage of the low cost of labor and the no-tax promotional law, and they establish their business in these industrial parks—everything from apparel businesses to fuel tanks.

Regarding Tourism, which has been growing at an average of 15% per year, it has also fueled the real estate business, currently in the boom stage in Nicaragua. We expect this to continue for at least the next four to seven years, or a maximum of ten. As we approach the 10th year or beyond, I expect we are going to get to a mature stage where property will have assumed a greater value based on infrastructure development. Right now, we are seeing profits from the growth of property from 17 to 25% per year. But we expect this will stop in another seven to ten years and you will see more stability in a more mature market.

What preparations need to be made before arriving here for business or to become a resident?

RC: To become a resident, there are some requirements. If you have time and speak a little Spanish, it's a very simple process and the immigration people here are efficient and well organized. You can just go to the immigration office on your own and they will assist you. If you don't have the time or the desire to deal with the paperwork, a lawyer can do that for you. It's not expensive, maybe around $500 or $600 for the cost of processing plus the legal cost. Another option is to find other foreigners that can advise you of people that perform these processes.

You will have to bring your birth certificate, your passport, your police record,and your health record. Everything must be duly notarized and authorized by the nearest Nicaraguan Consulate in your country. That's basically it. Then you come here and you have to prove the reason why you are planning to be a resident. If you come here as a "Retiree," there is a law that will protect you and you can live here with no problem. You are allowed to bring in your household goods without paying taxes; however, you cannot work or do business.

If your goal is to do business, the best thing is to come here as an "Investor." You would then have to prove to immigration that you are an investor. If you are going to be investing in tourism, for example, then the tourism office can issue a certification that you are in the process of developing a business. As an investor, the other thing you should do before arriving is to contact our office and we will advise you of a good lawyer to handle the preparation and paperwork.

Is there a type of business that is looked on more favorably by the government; something that could be considered beneficial to the country itself? How might a café or bar qualify in this respect?

RC: There are many ways to determine your direction for your future business. One of the aspects is to analyze what the country thinks is important. Another aspect is to analyze what is the best capacity of the country based on the markets and transport of goods. One must also consider the degree of ease or difficulty in doing their type of business in our country, but most importantly, to analyze what the market needs and is willing to buy. Nicaragua has recently signed CAFTA (Central American Free Trade Agreement) with the U.S. This basically means that the competition for business is going to be stronger and you have to be focused on the particular market you want to enter... although access to the markets will be very easy and provide a stimulant to business and commerce as a result.

Regarding the idea of opening a bar or restaurant against, for example, an energy or utilities type company, the food service and entertainment industries certainly have incentives in Nicaragua because they are considered part of the tourism business. Sales tax in Nicaragua is similar to that in the States. When you buy something, you pay 15%. When you open a restaurant, you can apply for the Law 306 incentive for tourism, and in so doing you are exempt from the 15% tax at the time of purchasing construction materials and equipment to develop your business. So that means that the construction cost of your business will be reduced along with eligible equipment costs, and if you’ve purchased the property, you will not pay property tax for ten years.

Law 306 incentives extend into a variety of business types that are eligible for tax exemptions. For example, investing in environmentally protected areas, arts and crafts, transportation (land, water or air), or investment in infrastructure such as marinas, energy production, waste disposal treatment, and other such options, particularly hotels, bed and breakfasts, lodges, condos, etc.

A good information resource for investors is Pro Nicaragua. Pro Nicaragua is a government agency created to promote investments in the country. They have a broader picture from a governmental point of view, and they give you all the information you’ll need to invest and develop your business.

How does a company like INTUR fit in with all this?

RC: INTUR is the government tourism promotion office and Pro Nicaragua is the investment promotion agency. And then you have several ministries and several private companies, like mine.

So a potential investor would be involved with all three of you in some capacity for creating their business?

RC: Basically they will work with us. They will get some basic information from INTUR relating to tourism. They can also get some information from Pro Nicaragua, and then come back to us once a decision has been taken and a business plan is created. However, if it is deemed their business will be able to take advantage of the Law 306 exemptions, then INTUR becomes more involved as far as analyzing it, authorizing it and providing the contract.

Regarding Law 306, is there a minimum investment requirement?

RC: There is a minimum requirement depending on the different types of business categories as well as the size of the business and its location. Is the business located in Managua or outside Managua? For example with hotels, there is a minimum investment requirement, which scales down depending on whether they’re lodges, B&Bs… but the requirements are very minimal.

What about insurance?

RC: In Nicaragua the insurance is strictly the owner's decision. No one will dictate to you that you must or must not have insurance in place. There are a variety of insurance options available here. If you want property, you can buy a type of insurance to protect you from legal questions relating to Title of Ownership from American-based brokers like First American Title or Stewart Title.

If you have a larger project, OPIC (Overseas Private Investment Corp.), issued by the U.S. government, will insure you against political risk—but not if you buy a personal lot or a house. For example, if you are going to develop property to contain 20 houses, they will insure you. But if you buy one for yourself, they will not. Then there are also local companies in Nicaragua that will insure you for whatever you want. At Calvet & Associates, we can assist you with OPIC negotiations.

What is the biggest risk to foreign investors that want to enter the market in Nicaragua? Is there anything in particular they should be wary of before committing to come there?

RC: Things have changed tremendously in Nicaragua over the years. If you asked me this question 15 years ago, I would have to say there are a lot of potential risks. But now, Nicaragua is a normal country... it's very far removed from those times of turmoil and political instability. There is a whole generation of people who were not even born during those days, so it's all been left behind in our country's history.

Even though Sandinista still exists as a party, the leaders are no longer guerrilla leaders. They live in plush, upscale houses; they own businesses and drive nice cars. So there will not be any more of this violence and lawlessness characterized in the past. And the party has become an official party now, based in the congress; they have matured and are leaning more towards a European left party style. For our generation the situation looks very stable.

The risks created a few years ago for buying property are decreasing with time because resolutions to past problems are continually made. Years ago it was very risky to buy any property in Nicaragua because there was this tremendous confusion as to who the rightful owner was. Now, through the efforts of the government and several organizations, the whole process is becoming much more organized. This isn't to say that there still can't be an issue where someone else lays a claim to your property, but this situation is much less prevalent than before. I can tell you with great certainty that these days, the major risks with investing in Nicaragua are much smaller and the business climate is continually improving.

Business Opportunities

Have you wanted to develop a presence in Nicaragua and tap into its active tourism industry and future potential? We can assist you. Here at Vinnie's World, Nicaragua is one of our primary areas of focus and between our growing local team and network of professionals, we can assist you to establish or extend your business operations in Nicaragua and guide you through the entry process. Learn more at our section for Nicaragua Business >>

Additional Resources:

For an account of our first visit to Nicaragua in Spring 2003, read the original story: The Undiscovered Country

For more news and information on all things Nicaragua go: "Between the Waves"

Visit our Image Gallery for a full range of images and content on Nicaragua to learn more about the country and its investment potential.